Hard Times! How do Households Cope with Financial Difficulties? Evidence from the Swiss Household Panel
- 256 Downloads
This study investigates impact of debt arrears and various consequential compensatory actions on self-reported satisfaction with life and the financial situation. The link between financial difficulties and the responses they demand has rarely been translated into satisfaction measures in the past. This study informs the literature about actual consequences of problems with arrears and impact of different coping strategies on household satisfaction measures. To address the questions at hand, data from the six (2010–2015) waves of the Swiss Household Panel were examined. A panel data model with fixed effects estimator was applied to account for unobserved population heterogeneity and mitigate the issues of omitted variables. The study confirmed that severe debt problems disproportionally affected self-reported satisfaction measures. Responses to arrears, if representing likely long-term solutions, did not signify further deterioration in self-reported measures. However, if arrears required resort to bank credit, disposal of household valuables or borrowing from family and friends, satisfaction with the household financial situation and household head life satisfaction were likely to suffer more.
KeywordsArrears Financial situation Life satisfaction Longitudinal data Swiss Household Panel
The work was financed within the 7th Framework Programme [FP7-PEOPLE COFUND No. 609402 –“2020 Researchers: Train 2 Move” (T2 M)]. Author would like to thank two anonymous reviewers and Patrick Fox for their very helpful comments. This study has been realized using the data collected by the Swiss Household Panel (SHP), which is based at the Swiss Centre of Expertise in the Social Sciences FORS. The SHP project is financed by the Swiss National Science Foundation.
- Ainslie, G. (1991). Derivation of “rational” economic behavior from hyperbolic discount curves. The American Economic Review, 81(2), 332–340. Retrieved from http://www.jstor.org/stable/2006881.
- Betti, G., Dourmashkin, N., Rossi, M., Verma, V., & Yin, Y. (2001). Study of the problem of consumer indebtedness: Statistical aspects final report. London: ORC Macro.Google Scholar
- Calvet, L. E., Campbell, J. Y., & Sodini, P. (2009). Measuring the financial sophistication of households. The American Economic Review, 99(2), 393–398. Retrieved from http://www.jstor.org/stable/25592430.
- Frey, B. S., & Stutzer, A. (2002). What can economists learn from happiness research? Journal of Economic Literature, 40(2), 402–435. Retrieved from http://www.jstor.org/stable/2698383.
- Friedman, M. (1957). A theory of the consumption function. Princeton, NJ: Princeton University Press.Google Scholar
- Guin, B. (2015). Culture and household saving. In Fourth conference on household finance and consumption. Retrieved from https://www.ecb.europa.eu/pub/conferences/shared/pdf/20151217_4th_conference_hfcs/Session1_Guin.pdf.
- Jappelli, T., Pagano, M., & Di Maggio, M. (2008). Households’ indebtedness and financial fragility. Journal of Financial Management Markets and Institutions, 1(1), 23–46.Google Scholar
- Jentzsch, N., & Riestra, A. S. J. (2006). Consumer credit markets in the United States and Europe. In G. Bertola, R. Disney, & C. Grant (Eds.), The economics of consumer credit (pp. 27–63). Cambridge, Massachusetts: The MIT Press.Google Scholar
- Kempson, E., Mckay, S., & Willitts, M. (2004). Characteristics of families in debt and the nature of indebtedness. Leeds: Department for Work and Pensions under licence from the Controller of Her Majesty’s Stationery Office by Corporate Document Services.Google Scholar
- Modigliani, F., & Brumberg, R. (1954). Utility analysis and the consumption function: An interpretation of the cross-section data. In K. Kurihara (Ed.), Post-keynesion economics. New Brunswick: Rutgers University Press.Google Scholar
- Neto, F. (1993). The satisfaction with life scale: Psychometrics properties in an adolescent sample. Journal of Youth and Adolescence, 22(2), 125–134. Retrieved from http://link.springer.com/article/10.1007/BF01536648.
- Oswald, A. J. (1997). Happiness and economic performance. The Economic Journal, 107(445), 1815–1831. Retrieved from http://www.jstor.org/stable/2957911.
- Rhemtulla, M., Brosseau-Liard, P. É., & Savalei, V. (2012). When can categorical variables be treated as continuous? A comparison of robust continuous and categorical SEM estimation methods under suboptimal conditions. Psychological Methods, 17(3), 354–373. doi: 10.1037/a0029315.CrossRefGoogle Scholar
- Sen, A. (1990). Gender and cooperative conflicts. In I. Tinker (Ed.), Persistent inequalities: women and world development (pp. 123–149). Oxford: Oxford University Press.Google Scholar
- Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12(3), 183–206. doi: 10.1002/(SICI)1099-0771(199909)12:3<183:AID-BDM318>3.0.CO;2-F.CrossRefGoogle Scholar
- Thaler, R. H., & Sunstein, C. R. (2003). Libertarian paternalism. The American Economic Review, 93(2), 175–179. Retrieved from http://www.jstor.org/stable/3132220.
- Voorpostel, M., Tillmann, R., Lebert, F., Kuhn, U., Lipps, O., Ryser, V.-A., et al. (2014). Swiss household panel userguide (2009–2013), Wave 15, December 2014. Laisanne: FORS.Google Scholar
- Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data (second). Cambridge, Massachusetts; London, England: The MIT Press. http://doi.org/10.1515/humr.2003.021.